Eutelsat‘s results have been met with favourable results by analysts who believe the company has performed strongly in recent periods.

The operator reported revenues of 590 million euros ($745.2 million) in the nine-month period which ended March 31, an increase of 5 percent compared to revenues of about 562 million euros ($709.9 million) in the same period a year ago.

Eutelsat’s third quarter revenue of 195.1 million euros ($246.6 million) were ahead of expectations of 183 million euros ($231.2 million), Sarah Simon, a media analyst at Morgan Stanley wrote in a research note. “Video increased 3.9 percentin the third quarter, benefiting from increased demand for capacity during the Winter Olympic Games and some new contract wins,” she said.

Simon highlighted important contract wins with SRG SSR, Switzerland’s public broadcaster; Russian pay-TV platform NTV-Plus and Direct 8, the new entertainment channel launched March 31 by Bollore Group through France’s DTT network.

Another satellite equity analyst who requested anonymity was equally positive about Eutelsat’s performance. “Eutelsat reported [third quarter 2006] sales that are 4 percent above our estimates,” the analyst said. “The company upgraded FY06 guidance, driving our 1 percent sales upgrades in FY06 and in FY07.”

Attractiveness of FSS

The majority of Eutelsat’s revenues still are driven by video applications. For the most recent nine months, video applications accounted for 392.7 million euros ($496 million) of revenues, an increase of 2.2 percent compared to the previous year. Data and value added services for the nine months accounted for just less than 124 million euros ($156.6 million) of revenues, a 7 percent increase compared to the same period a year ago. Multi-usage revenues also saw a strong increase. In the nine months until March, the operator saw revenues increase over 11 percent to go over the 50 million euros ($63.2 million) mark.

According to Simon, Eutelsat’s strong results highlight the attractiveness of the Fixed Satellite Services (FSS) sector. “We believe that the FSS industry is one of the sub- sectors within media where we will see the greatest structural growth in the medium term,” she said. “Capacity demand is being driven by new channel launches, growth in interactive services, the development of high-definition TV (HDTV) and increased demand for global security and defence.”

Lower Tax

One of the significant aspects to come out of Eutelsat’s results is the fact it is refinancing of debt and a simplification of its overall corporate structure.

“This should result in the direct ownership of ETL SA (operating company) by ETL Com (Holding, listed vehicle),” the unnamed analyst said. “This move aims at eliminating ETL’s tax inefficiency, which is currently explained by the presence of 1 billion euros ($1.3 billion) of non tax-deductible financial debt, located in between ETL Com and ETL SA. This means ETL is on its way to achieve a 35 percent tax rate in FY08 versus our current 40 percent estimate. We view this as a positive, as ETL’s tax inefficiency was seen as a major overhang by the market.”

Simon also view the change as a positive for Eutelsat. “If Eutelsat can reduce its non-tax deductible debt more rapidly than we assume in our forecasts, this would provide further upside potential to our estimates given that it would result in Eutelsat paying a lower tax charge in both a relative and absolute basis,” she said. “If we assume that the 900 million euros ($1.1 billion) of non-tax deductible debt is fully refinanced at the existing average interest rate by 1st July 2007 (beginning of fiscal 2008), we estimate that this could enhance earnings by a further 7.1 percent in 2008, 5.9 percent in 2009 and 5.4 percent in 2010.”

–Mark Holmes

Contact, Vanessa O’Connor, Eutelsat, e-mail, [email protected] Sarah Simon, Morgan Stanley, e-mail, [email protected]